Blue ammonia premium hits record lows amid high USGC spot prices, pressure from Europe

The Platts blue ammonia premium inched slightly up from all-time lows on Oct. 5, reaching the second-lowest price on record for the assessment, amid a downtrend in the cost of production for US ammonia despite bullish US Gulf Coast ammonia prices.

The Platts blue ammonia premium was assessed at $28.05/mt Oct. 5, rising just slightly from the all-time low of $28/mt seen Oct. 4. The next lowest price for the assessment was seen Sept. 30 at $28.85/mt, with the assessment having launched on April 22, 2022.

The blue ammonia premium considers the difference in costs of production pathways between ammonia with and without carbon capture and sequestration, or CCS in the USGC region, according to S&P Global Commodity Insights data.

The recent plummet of the premium for blue ammonia over conventional grey ammonia to its record low was caused by a number of factors.

Firstly, costs for production of blue ammonia, which has a carbon capture rate of 90% using carbon capture and storage, or CCS, have dwindled. Meanwhile, energy costs in USGC for natural gas and power have also trended lower from mid-summer peaks seen in August. Electricity prices fin the Electric Reliability Council of Texas, or ERCOT, dropped 44% over the Aug. 1-Oct. 3 period, while Henry Hub gas prices fell 31% in the same period, data from S&P Global showed.

Another factor that spurred the ammonia premium to drop on Oct. 4 was the steady-to-higher CFR USGC ammonia spot price that was supported by global ammonia market destruction that stemmed from the shutoff of European ammonia production.

Global ammonia spot market

Ammonia production curtailments in Europe have left local ammonia producers in a net buying position where they must fill this supply. This occurred in a market where regional demand was still strong, an ammonia trader said.

Nutrien reported a CFR Northwest Europe trade earlier this month for first-half October shipment in a range of $1,315-1,325/mt, with Nutrien as the seller.

More recently, the Tampa October contract between Norwegian chemical company Yara International and Florida-based agriculture firm Mosaic Company was agreed upon at $1,175/mt, $25 higher than the previous month.

When comparing the two trades, the netback of the Northwest Europe trade at $1,315/mt to an FOB Caribbean-origin basis was higher than the Tampa October contract settlement.

Despite the increase in the CFR USGC settle and the higher number of cargoes being sent to Europe, it seemed that ammonia producers in the Caribbean and USGC were attempting to remain competitive in the global market by keeping their prices lower, even though a trade of Caribbean origin to Northwest Europe was done at a premium.